This discussion aims to update current OSMO LST supporting liquidity to be closer to the three main targets as initially laid out here:
- Minimal OSMO staked using Protocol Liquidity
- Diversity of OSMO LSTs
- Resilient Pegs for OSMO LSTs
These proposals:
- Move towards minimal OSMO LST holding by the community pool by shifting the 50/50 stOSMO stableswap to a Concentrated liquidity position which will expire as redemption rate increases.
- Further optimizes stOSMO and qOSMO liquidity by deploying more liquidity to the Locust vaults.
- Dissolves stkOSMO liquidity due to the discontinuing of support by pStake
- Improves the backing of bOSMO and ampOSMO beyond the existing White Whale liquidity by adding additional liquidity to Locust vaults based on Concentrated Liquidity pools.
Current Status of OSMO LST liquidity
-
9M OSMO in a stOSMO Stableswap pool, remaining from Proposal 641
- 50/50 stOSMO/OSMO
-
8.3M OSMO in a static Concentrated Liquidity position from Proposal 769
- This position is from 1.2075 - 1.27, as current market rate is 1.265 this is mostly OSMO and will be out of position in around 2 weeks.
-
200k OSMO assigned to stOSMO as a trial Locust vault deployment in Proposal 798
-
931k OSMO assigned to qOSMO in a static Concentrated Liquidity position in Proposal 770
- This position is from 1.13 - 1.19 and is single sided as OSMO
- This position is currently held in the Liquidity subDAO address pending the enabling of ICA on Quicksilver, which blocked the intended double-sided position.
-
1.07M OSMO assigned to stkOSMO in a static Concentrated Liquidity position in Proposal 771
-
1.2M OSMO assigned to ampOSMO in White Whale pools
- Composed of 50/50 ampOSMO/OSMO
- Custodied by a multisig as passed in Proposal 821
-
1.2M OSMO in White Whale pools
- Composed of 50/50 boneOSMO/OSMO
- Custodied by a multisig as passed in Proposal 821
Total OSMO in program: 21.7m
Chart 1: Composition of LST Backing Liquidity
Chart 2: Peg support provided to each LST
Performance
Since the deployment of liquidity to the Concentrated Liquidity pool in April, stOSMO volatility has been far reduced, showing the improvement in liquidity efficiency that these concentrated positions have over Stableswap positions.
Other deployments of liquidity have been less successful, with qOSMO only being able to be provided single-sided, stkOSMO seeing little adoption, and ampOSMO and bOSMO gaining niche usage from the White Whale pools.
The trial Locust deployment has transitioned from a 60/40 split of stOSMO/OSMO to a 5/95 split, reducing the community pool staked OSMO while increasing the liquidity depth provided by the stableswap liquidity by around 50 times due to the re-positioning ability of the vaults.
These proposals aim to further optimize the stOSMO holding of the community pool, reduce the staked OSMO held by the community pool to as low is functional to allow purchase between the redemption rate and market price, and increase support for alternative Liquid Staked tokens by deployment of liquidity from these optimizations.
Rather than propose these as conditional proposals relying on the stOSMO redeployment, they will be proposed in sequence with minimal overlapping.
Proposals:
Proposal 1 - stOSMO liquidity reevaluation
Current stOSMO liquidity
-
9M OSMO in a stOSMO Stableswap pool, remaining from Proposal 641
- 50/50 stOSMO/OSMO
-
8.3M OSMO in a static Concentrated Liquidity position from Proposal 769
- This position is from 1.2075 - 1.27, as the current market rate is 1.27 this is mostly OSMO and recently went out of position briefly.
-
200k OSMO assigned to stOSMO as a trial Locust vault deployment in Proposal 798
Proposed actions
Transfer all stOSMO stableswap liquidity, stOSMO concentrated liquidity, and liquid stOSMO to the Osmosis Liquidity subDAO to perform the following actions
- Remove all protocol liquidity from the stableswap pool.
- This should be performed incrementally if the existing concentrated liquidity position is out of range during this action.
- Create a new stOSMO position of 1.24 - 1.3 in the 0.05% pool using the newly available liquidity.
- This position will initially be 50% stOSMO and 50% OSMO.
- This position will last approximately three months before it becomes entirely OSMO through the redemption rate increase, closing the Osmosis community pool’s static holdings of Staked OSMO via Stride.
- Remove the 1.2075 - 1.27 position from the concentrated liquidity pool
- Transfer 700k OSMO and any excess stOSMO from fee collection into the Locust vault for stOSMO/OSMO as previously used in Proposal 798.
- Transfer the remaining OSMO, the vault representing tokens, and the static position ownership to the community pool.
stOSMO Liquidity after proposal
- OSMO assigned to stOSMO support lowered from 17.5 million to 10 million.
- The stOSMO peg performed very well during recent volatility. The initial 20 million OSMO liquidity was assigned when Stableswap pools were the only option for deployment.
- Liquidity depth remains similar due to increased overall concentration.
- Static positions perform approximately 10x better than stableswap pools
- Locust vaults have trended towards holding a narrower position in a mostly single sided position and perform approximately 30x better than stableswap pools.
- Osmosis community pool holdings of stOSMO will be removed through arbitrage over three months.
- This reduces staked OSMO held by the community pool to a minimal amount depending on the liquidity usage. If stOSMO loses peg, more is staked until arbitraged back. If the market rate is close to the redemption rate, then stakers are undiluted.
Proposal 2 - Close stkOSMO position
This proposal would close the static stkOSMO position established in Proposal 771 and return the OSMO to the community pool.
This is due to the developers of stkOSMO changing their focus to Bitcoin liquid staking, as announced here.
This proposal would transfer the stkOSMO position to the Osmosis Liquidity subDAO, which would facilitate removing the liquidity and return it to the Osmosis Community Pool.
Any stkOSMO recovered by this process will be redeemed for OSMO via unstaking and also returned to the Osmosis community pool.
Proposal 3 - Transfer qOSMO backing liquidity to Locust
This proposal would transfer the qOSMO backing OSMO position established in Proposal 770 to a Locust vault to provide deep backing liquidity for reliable collateral usage.
The liquidity provided as a static position in Pool 1590 is currently out of range and does not allow the peg of qOSMO to be maintained.
This proposal approves the transfer of this position to a Locust position before returning to the Osmosis community pool. This restores this liquidity to functionality while improving the efficiency of the backing liquidity by around three times.
About Locust
Locust is a market making and position management tool specifically designed for Concentrated Liquidity (CL) pools.
In CL pools liquidity is often provided at inefficient ranges. This is largely due to the difficulty of active management coupled to a desire to ensure that a position remains in range as much as possible.
Locust LST strategies track the redemption rate of the LST and create positions based on the current market rate and the target price of the asset. This ensures that this liquidity is always used to buy at a pre-defined discount to the target price and sell back at a discount
Proposed Deployment
- Initial strategy of target vault:
- Spread: 1%
- Discount 0.5%
This would be represented by OSMO positions backing the LST at a 1% depeg under market price, that sold back to OSMO when the market price returned to 0.5% around the redemption rate.
For the qOSMO/OSMO vault the fee schedule would be:
- Withdrawal Fee: 0%
- Performance Fee: 15%
Proposal 4 - Provide backing liquidity to bOSMO via Locust
This proposal would allocate 1,000,000 OSMO from the community pool to support the peg of bOSMO.
Current liquidity for bOSMO is provided on a White Whale xyk pool and is stored in a custodial multisig according to Proposal 821. This liquidity continues to provide a base level of liquidity for both bOSMO and ampOSMO.
This additional liquidity would be provided to the concentrated liquidity pool, 1922, via a Locust vault.
Based on current performance of Locust Vaults vs xyk pools, this liquidity should be around 50x more efficient than the existing deployment, enabling the wider use of ampOSMO through deeper backing liquidity, decreasing volatility when holders decide to utilize the benefit of a Liquid Staking Token to change their holdings or a disposal is required by use cases such as lending protocols.
This proposal would transfer 1m OSMO equivalent of bOSMO and OSMO from the community pool to the Osmosis Liquidity subDAO, which will deposit these to the bOSMO Locust vault and return the representative tokens to the community pool.
About bOSMO
bOSMO is a Liquid Staked Token for Osmosis minted by the Gravedigger protocol on Backbone Labs.
Delegation weighting is an even split between whitelisted validators.
bOSMO is the market token for the Mad Scientist NFTs on Necropolis and is also distributed to Mad Scientist holders on Osmosis.
About Locust
Locust is a market making and position management tool specifically designed for Concentrated Liquidity (CL) pools.
In CL pools liquidity is often provided at inefficient ranges. This is largely due to the difficulty of active management coupled to a desire to ensure that a position remains in range as much as possible.
Locust LST strategies track the redemption rate of the LST and create positions based on the current market rate and the target price of the asset. This ensures that this liquidity is always used to buy at a pre-defined discount to the target price and sell back at a discount
Proposed Deployment
- Initial strategy of target vault:
- Spread: 1%
- Discount 0.5%
This would be represented by OSMO positions backing the LST at a 1% depeg under market price, that sold back to OSMO when the market price returned to 0.5% around the redemption rate.
For the bOSMO/OSMO vault the fee schedule would be:
- Withdrawal Fee: 0%
- Performance Fee: 15%
Proposal 5 - Provide backing liquidity to ampOSMO via Locust
This proposal would allocate 1,000,000 OSMO from the community pool to support the peg of ampOSMO.
Current liquidity for ampOSMO is provided on a White Whale xyk pool and is stored in a custodial multisig according to Proposal 821. This liquidity continues to provide a base level of liquidity for both bOSMO and ampOSMO.
This additional liquidity would be provided to the concentrated liquidity pool, 1923, via a Locust vault.
Based on current performance of Locust Vaults vs xyk pools, this liquidity should be around 50x more efficient than the existing deployment, enabling the wider use of ampOSMO through deeper backing liquidity, decreasing volatility when holders decide to utilize the benefit of a Liquid Staking Token to change their holdings or a disposal is required by use cases such as lending protocols…
This proposal would transfer 1m OSMO equivalent of ampOSMO and OSMO from the community pool to the Osmosis Liquidity subDAO, which will deposit these to the ampOSMO Locust vault and return the representative tokens to the community pool.
About ampOSMO
ampOSMO is a Liquid Staked Token for Osmosis minted by Eris protocol.
Delegation weighting is determined by participants staking ampOSMO in turn to indicate their preferences from a whitelist of validators.
Eris Protocol also maintains a LST arbitrage vault for both ampOSMO and bOSMO to maintain their peg close to the redemption rate.
About Locust
Locust is a market making and position management tool specifically designed for Concentrated Liquidity (CL) pools.
In CL pools liquidity is often provided at inefficient ranges. This is largely due to the difficulty of active management coupled to a desire to ensure that a position remains in range as much as possible.
Locust LST strategies track the redemption rate of the LST and create positions based on the current market rate and the target price of the asset. This ensures that this liquidity is always used to buy at a pre-defined discount to the target price and sell back at a discount
Proposed Deployment
- Initial strategy of target vault:
- Spread: 1%
- Discount 0.5%
This would be represented by OSMO positions backing the LST at a 1% depeg under market price, that sold back to OSMO when the market price returned to 0.5% around the redemption rate.
For the ampOSMO/OSMO vault the fee schedule would be:
- Withdrawal Fee: 0%
- Performance Fee: 15%
Further proposals
While not expressly drafted at this time, I want to raise the potential for adding support for Prysm’s OSMO Yield pool token as an LST equivalent for debate.
Prysm liquid stakes OSMO as cOSMO and splits the principal and yield into pOSMO and yOSMO.
The OSMO Yield pool token contains cOSMO and pOSMO, allowing users to switch between the different types of fragmented tokens.
To exit this entirely, Prysm has a pool called “OSMO Boost” comprising 90% of the Yield pool token and 10% of OSMO.
The Osmosis equivalent would be a ratio that targets the opposite weighting; therefore, the Osmosis community pool would hold a mix of cOSMO, pOSMO variants, and OSMO rather than just cOSMO/OSMO.
While this model is more complicated than a typical LST, it follows the same principle and is submitted for consideration for this program.
